Fintech start-up EarlySalary is making emergency loans more affordable

Neha Kumari needed a new phone urgently after her old one was damaged during a Saturday night party. To add to her difficulties, it was the beginning of the last week of the month and the salary day was 10 days away. Missing client calls for more than a couple of days was out of the question and the weekend was expensive anyway.

Neha, who did not have a credit card, could have borrowed from friends, but most of them were as broke as she was then. And borrowing from the family was ruled out. The last time she had borrowed Rs 10,000 from a friend to book emergency tickets was three months before and she was still paying that person’s cab fares in return for the favour.

Her roommate suggested she try EarlySalary for a quick loan. Less than six hours later, Neha had Rs 15,000 in her account and within 48 hours she had a new phone. 

Ashish Goyal and Akshay Mehrotra, founders of EarlySalary, had studied similar situations among thousands of young urban professionals and came up with a lending service that would meet such emergency requirements. 

EarlySalary recently raised Series B funds of Rs 1 billion from investors such as Eight Roads ventures, IDG Ventures, DHFL, and Ashok Agarwal.  “Over the last two years, EarlySalary has emerged as one of the fast-growing fintech players in the country with its cutting-edge technology platform, and is now among the market leaders in the real-time short-term loan business,” said Karthik Prabhakhar, director and head of fundraising, IDG Ventures India. 

Business model

The EarlySalary mobile app claims to give cash loans and salary advances of up to 50 per cent of one’s monthly pay within 10 minutes. This is beneficial for borrowers who have little or no credit score. The company claims to leverage credit bureau ratings as well as social media surrogates for risk assessments and machine learning scorecards for faster loans approvals. 

“In our discussions with employees at many IT companies, when professionals borrow from their colleagues, the barter is usually for two pints of beer at the end of the month. So we made sure that the cost of our loans should be cheaper than that,” said Mehrotra. Borrowers end up paying about Rs 9 per day in interest for loans of about Rs 10,000, he says. They further partner corporate clients to give advance salaries to their employees. 

While the loan size varies between Rs 8,000 and Rs 200,000, the most commonly borrowed amount is Rs 20,000. 

The fintech start-up competes with the likes of Moneytap, Shubh Loans, StashFin and Cashe in the personal lending space.

Mehrotra has worked as CMP for Big Bazaar, Future Retail, and PolicyBazaar, and led marketing at Bajaj Allianz Life Insurance. Goyal has served as chief investment officer at Bajaj Allianz General Insurance. 

The rest of EarlySalary’s management team also comprises former top professionals of large investment banking and technology companies. 

Profit targets 

“We are in the stage of expanding the business, so customer acquisition is more important than turning profitable now. We are keen on expanding the base further across the board right now,” said Goyal. 

However, the founders see themselves turning profitable when they manage to take their 30,000-odd customer base to 100,000 as well as increase their monthly loan disbursals from Rs 350 million to Rs 2,500 million by early 2019.  While they will use the current round of funding to improve their customer base, they also see this as way to raise a larger debt against equity. “One of our major milestones would be to disburse Rs 10 billion in the medium term,” said Mehrotra. 

Long-term challenges 

The start-up counts three major challenges in its journey. Ensuring efficient access to low-cost debt is something it sees as the top challenge for early-stage companies. While it doesn’t detect a need for another round of funding, it anticipates larger debts from financial institutions. 

The second challenge is to keep operational costs low. The company aims to keep its employee base nimble and hopes to reduce the current 70-strong team to around 50 as the organisation achieves scale. 

Lastly, it wants to focus on keeping delinquency levels to a minimum. “We can raise this much money because delinquency levels are controllable and we have a team working towards recovering every rupee that goes out,” Goyal said. 

Expert take: Payday advance loans are not well regulated

Rituparna Chakraborty Co-founder and EVP, TeamLease Services

The biggest challenge for the concept of payday advance loan in India is that it is not regulated adequately, and hence is prone to misuse by those who avail of these loans as well as those who operate these services. Quite a few online service providers have come up in the last couple of years. The model is lucrative for youngsters and, with increasing penetration of mobile phone usage, demand is likely to grow – it is a matter of time that it shall catch the attention of the financial regulators, and hence operators need to be prepared. Ensuring the recovery of loans, especially those offering retail services, could be an uphill task. However, it would be a tad less tedious if one can strike an understanding with the employers directly.